As I stood on a Brooklyn street corner late at night with one hand gripping a wad of cash in my jacket and the other clutching the smartphone in my pocket, an old memory hit me. The place looked exactly like a street corner where I bought weed once (or maybe twice) in high school.

This time I was making another transaction, one that could also confuse bystanders and get a second look from local police. I was getting ready to buy bitcoins.

There are plenty of other ways to acquire the virtual currency. There are even Bitcoin ATMs in several cities in North America. But sites like LocalBitcoins.com—a Craigslist-inspired directory that brokers real-life transactions for a modest fee—serve a very specific type of clientele, those trying to cash-out their bitcoins or acquire them without tying the transaction to their actual identity, often with the intention of staying on the blindside of the law.

I remember feeling vulnerable back in high school, worrying about being robbed or arrested. A similar weight started to settle in as I waited for the stranger I found online. I knew nothing about him, not even his name or what to look for. He just instructed me to come to this intersection with my smartphone, ready to complete the transaction.

The $160 that I carried wouldn’t even buy me a single Bitcoin, but it’s always best to test the waters with small stakes. The dealer was willing to exchange as much as $5,000 per transaction, and others offer services that double that.

I leaned into a shadow on the gate of a shuttered bodega and checked the time. My seller was late.

Under the table

I first learned about LocalBitcoins through Steven Sadler, a heroin kingpin better known as Nod on the notorious black market Silk Road. He had called me on the run, facing federal charges for drug trafficking and distributions. He’d been accused of pushing 2,269.5 grams of cocaine, 593 grams of heroin, and 105 grams of meth in four months in 2013, according to the criminal complaint, and he wanted to document his story before his clock ran out.

Over the course of several days and hours of conversation, he shared court documents, evidence logs, and hundreds of emails, detailing the inner workings of his online drug empire.

“Any Silk Road vendor not on LocalBitcoins is losing a lot of money,” Sadler told me at the time.

In early 2013, Sadler was clearing over $100,000 monthly in profit, mostly off cocaine, his premium drug at the time. The deals were paid for in Bitcoin, the cryptocurrency favored on the Dark Net for its pseudonymous nature.

There are over 1,600 LocalBitcoins sellers in New York alone and thousands more across the country.

But Sadler started off nearly clueless. An ex-IT professional, he had no idea how to exchange his growing mass of bitcoins for dollars without arousing police suspicion. He tried a couple of different schemes, including one that involved dozens of stolen bank debit cards and ATM transactions, but they weren’t scalable. Then he stumbled onto sites like LocalBitcoins.

Founded in Finland in 2012, LocalBitcoins quickly became a favorite haunt for big dealers making major moves and rapidly moved up the ranks to become one of the most popular startups in Bitcoin history. The way it works is simple: A seller lists the price of their bitcoins and where they want to meet, usually a public place. A buyer reaches out and a specific location—maybe a Starbucks, maybe a street corner—is dictated. Bitcoins typically cost more than market value but come with the added benefit of relative anonymity, plus a lack of fees and legal issues. Some traders use the site to make a living.

Sadler claims he made several thousand-dollar deals out of his local Starbucks, but those paled in comparison to his biggest transfer ever. In January 2013, at a bar at the Cosmopolitan, a jet black and purple casino in the heart of the Las Vegas strip, he received $84,000 in cash under the table in exchange for around 400 bitcoins.

The bitcoins, due to the anonymous nature of the trade, now had no traceable connection to the man who sold them, and the cash was clean too. Sadler had effectively severed ties to the tens of thousands of dollars’ worth of deals he’d struck the month before. On the other side of the transaction, those bitcoins would rise to over $400,000 in value over the next few months—and that’s to say nothing of the hundreds of thousands of dollars’ worth of other deals Sadler made.

LocalBitcoins was the lynchpin to Sadler’s entire operation.

A global crackdown

In 2013, American regulators made clear that Bitcoin dealers can qualify as financial institutions—money services businesses, to be specific. As such, Bitcoin dealers must be registered and ready to produce the proper paperwork and records on demand. If they don’t comply, the potential for severe punishment is obvious.

In Miami, Florida, for example, a LocalBitcoins user going by Michelhack traded over $100,000 in bitcoins in the last few months of 2013 alone. As a buyer and seller, he was dealing with hundreds of business deals, so it was no surprise when yet another newbie approached in January 2014 and asked to exchange a bitcoin for $1,000. That same buyer subsequently set up a transaction to purchase $30,000 worth of bitcoins in a ritzy downtown hotel. That’s par for the course when it comes to these deals—go small, earn trust, build up—and interest in Bitcoin was surging at the time, with the price soaring above $1,000.

Around the world, the legal environment in which Bitcoin lives is changing.

According to court documents, the buyer told Michelhack that the bitcoins were being used to purchase stolen credit cards. When the deal was set to go down, Michelhack was arrested on charges of money laundering and making an unlicensed money transmission.

Just hours earlier, an even bigger Bitcoin trader was arrested in Miami on the same basic pretense.

Around the world, the legal environment in which Bitcoin lives is changing.

In Germany, LocalBitcoins was recently forced to completely cease operations after the country’s financial regulators reportedly threatened the company for its unlicensed activities. Individual sellers have been hit with lawsuits, and the legal future of bitcoins in Germany remains to be seen.

The demand for LocalBitcoins’ services, however, remains high. There are over 1,600 LocalBitcoins sellers in New York alone and thousands more across the country.

“If you want a significant amount of anonymous bitcoins, right now this community is about the only mechanism still available,” researcher Nicholas Weaver said earlier this year.

Waiting for the man

Scams happen on LocalBitcoins, and the site makes it clear that it’s not liable in such instances, but I had reason for confidence, too. I was meeting up with one of the most highly rated Bitcoin sellers in New York City.

Finally, across the avenue, I spotted a man who seemed to be staring at me. Between the late hour and the dimmed street light, I couldn’t make out the man’s eyes beyond the big winter coat and hood that obfuscated his face. Soon, though, I saw him nod his head in my direction and walk over to me.

The $160 that I carried wouldn’t even buy me a single Bitcoin, but it’s always best to test the waters with small stakes.

He shook my hand and said “nice to meet you,” but I don’t think he much meant it. We quickly got down to business. I took out the stack of cash, realizing then why Sadler was smart to use a suitcase. After a quick count—it wasn’t even enough to check if the bills were counterfeit, a problem some LocalBitcoins sellers have run into—the bitcoins were transferred to my wallet. I could see it on my own phone, and the dealer now had a confirmation code to prove it either way.

The entire transaction took only a few minutes. It was a dark New York winter night, and the man I’d just handed the cash to had easily covered his face so that I couldn’t provide a real description if I tried. We parted ways, and he took care to disappear in the opposite direction that I came from.

His identity wasn’t perfectly covered up. He gave me a phone number to a device that clearly wasn’t a throwaway. If law enforcement got involved, his identity could likely be traced back to that number. Then again, a tiny $160 transaction isn’t illegal. It’s when the numbers get bigger—just hitting a $200 sell can leave you open to prosecution—that a legal line gets crossed.

Many of the LocalBitcoins sellers who are still operating off the books are clearing much more than that with every deal they make.